Living in the Netherlands but with income in another country? You may have to deal with several different tax deadlines.
May 17 might not mean a lot to you…but if you are living in the Netherlands with an obligation to file taxes in the United States, you will know that this was ‘tax day’, an important deadline for this year. And one question all tax advisors frequently hear is: ‘where do I need to pay my tax?’
Unfortunately, there’s not one simple answer to this question. The country that will levy your tax depends on where you live, the kind of income it concerns, your movements during the tax year, and also the particular treaties between countries.
To avoid double taxation – tax being paid twice on the same income – countries have different agreements, or double taxation treaties, with each other. The principle is that you shouldn’t pay tax again on the same income (although you may have to file your records in both countries).
But to make life even more complicated, different countries have different dates for their tax year and different deadlines, which means you really need to stay on your toes to avoid potential fines and interest payments.
‘It’s really hard to talk in general terms,’ says a spokesman for tax advisors Blue Umbrella. ‘There is a treaty that is a kind of template, called the OECD model tax convention. This has 32 articles for different kinds of taxation, such as employment, profits from self-employment and property. But some countries such as the US have a couple of hundred articles.’
While one country might be fairly close to the OECD model, another might be very strict, while the timing of the tax years between two countries could also be different.
You might, for instance, be living in the Netherlands where the tax year is the same as a calendar year, but have property in the UK, where the tax year starts on April 6. The terms of the treaty between the two countries will determine which country has the right to levy tax on types of your income – a kind of tie breaker, if you like.
Questions to ask yourself:
Where are you actually living?
This is judged on things like the license plate on your car, where your children go to school, or where you practise your faith, as well as where your employer is based.
What is the source of the income?
Income from property, for example, has different rules and is often taxed in the country where it is based. But you’ll still need to declare it in the Netherlands (and then deduct it) if your worldwide income is taxed here.
Did you spend 183 days in another country?
There’s an important test that is particularly relevant during the coronavirus pandemic, when people have made decisions to base themselves in different places or been stuck due to travel restrictions.
If you spend 183 days of one tax year in country, that country has the right to levy taxes on your income. So even if you were employed in the UK by a British company, if you spent 183 days of 2020 in the Netherlands, the right to levy tax comes here. If the tax years of the two countries are different: check with an expert.
The OECD has advised that workers who were effectively stranded by the lockdowns should not have these days counted as part of their official residence, but some countries do not agree with this advice. ‘France is strict, coronavirus or not,’ the Blue Umbrella spokesman said.
Have you kept good records?
It might sound old fashioned but you should keep a diary of your movements. Count your days, record when travel restrictions started, check the countries’ rules, and then you (or your tax adviser) can work out where you should be taxed.
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